Don't Get Your Hopes Up On a Meaningful China Trade Deal

Below is a brief excerpt transcribed from today's edition of The Macro Show hosted by Macro Analyst Christian Drake.

A China trade deal ... finally?

Well there’s a chance... A chance China might just buy stuff it needs anyway at depressed prices.

It's silly considering the escalation over the last couple days. You had the NBA kerfuffle, companies being blacklisted, and visa restrictions reported. Amid all of this, we need to highlight the complexion of what any interim deal would look like.

If it's going to happen, it will presumably look something like this.

Remember the last olive branch China offered about a month ago, when they started to re-institute agricultural purchases, in particular soybeans? Any interim deal would look similar to that. In essence don’t escalate anything further and we’ll buy some of your agricultural products.

Just like in August. Weekly soybean exports to China rose to 780,000 metric tonnes on the expectation of a trade deal.

So that chart looks pretty good right?

Well ... what’s really going on here is that the recent metric of monthly soybean exports to China showed that in the latest offering they were going to buy 2-3 million metric tons. Sounds great on the surface, but if you dig deeper and look back over the prior decade, China has been purchasing soybeans to the tune of 36 million tons a year.

All this amounts to is China buying stuff it needs anyway at further depressed prices. You can see that Soybean Futures trade, trend, and tail are all broken in terms of soybean prices.

Bottom line: Don’t expect much headway, despite the breathless Old Wall headlines you may read.

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